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How Much Should I Pay the Babysitter? Mint Answers

Kids. As soon as they make their grand entrance into our lives, we’re hit with a tsunami wave of money-related questions and issues that we’ve likely never faced before.

Such as: How much should I pay the babysitter? When do I start giving my kid an allowance? How much do I pay a kid to mow my lawn? Should I save in a 529 Plan?

Notice a trend? As your kids grow, those money questions only get more complex. This is when some of us turn to friends and family members for advice; others pay a professional – and yet others take their questions to the online community.

In this week’s round-up of Q&A activity on Mint Answers, we feature the four questions above, along with some of the suggestions shared by the Mint community.

To read more answers or to chime in with your response, click on the links below.

I have a newborn and would like to have a couple of nights free per week. How much should I pay my neighbor, who has offered to watch my son and has a couple small children of her own?

From Mint Answers:

My wife and I recently struggled with this and settled on minimum wage for our regular babysitter. I didn’t feel right paying less but certainly didn’t think the qualified for more. We also have a friend watch our son once a week for about 1-1.5 hours and pay her $10/week. She has two kids of her own around the same age as our son.

A lot of people are saying $10/hr. A lot of other people are saying, “If you pay by the hour, the kid will make a one-hour job take three hours.” The original people are saying, “Oh yeah? If you pay by the job, they’ll rush a three-hour job in one hour.”

I’m considering going to grad school in the next 1-3 years. I opened a 529 plan for myself and have a measly $1,300 in it (I’m putting about $100 per month into the account.)

My income has increased dramatically this year, and I am trying to figure out where to allocate my savings. Does the 529 plan make sense? I’m investing aggressively in it because I figure if I end up losing money in the short term I can let it grow for a long time and one day when I have children and they want to go to school, I can use the 529 plan to fund their education. It it performs well, I can use it to pay for my education.

Still, I’m hesitant to put a large amount of my savings into the 529 plan. Do you think it would be better to just put into stocks or other savings vehicles?

From Mint Answers:

You don’t say whether you have other savings, but if you are not already doing so I would consider putting $5,000 a year into a Roth IRA.

Ordinarily, a 529 is the right choice for educational savings because you usually expect to need the money before retirement age, and because the 529 can accommodate very large upfront contributions (in the hundreds of thousands of dollars, potentially). But both of those factors assume you’ve got some time for the account earnings and the tax advantages to build up. And you’d also want to be fairly certain that you are going to use it for qualified purposes.

If your time horizon is only 1-3 years, you aren’t going to earn much because you’ll need to be invested very conservatively. This limits the tax advantage. You also have some uncertainty about what you’ll use the money for, and the 529 takes away some flexibility.

A Roth addresses both of these concerns. First, you can withdraw your contributions (but not the earnings) from a Roth at any time for any reason, without taxes or penalties. So you get the same benefits you would have had with a 529 (tax-free accumulation), but the added flexibility to withdraw the contributions for other purposes, or keep the money there as retirement savings if you decide not to go to graduate school. You may also find a better variety of short term investment options outside of a 529 plan.

… if you already max out your Roth IRA, then the 529 is the only place left for tax free accumulation.

If you don’t use the money yourself for graduate school, and even if you never have children, at your age the benefits of tax free accumulation are likely to more than outweigh the penalty for non-qualified withdrawal by the time you are ready to tap the your retirement funds.

Consider the limitations, however. If your Plan B is long term retirement savings or college savings for your children, the 529 looks good. If your Plan B is to buy a house and you might need this money for the down payment, a 529 looks less attractive. So as long as you recognize the limitations on accessing the money, I think the 529 is still a viable option for you.

Do you have a money question that you feel has no black-or-white answer? Go to Mint Answers and ask away! While you’re there, feel free to answer questions from other community members. Come back often, as we introduce new enhancements to this feature.